DCIT CIR 3(1), MUMBAI V. EXPORT CREDIT GUARANGEE CORPORATION OF INDIA LTD, MUMBAI

ITA 6495/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2996 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 05-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Capital expenditure
• Section: 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , , ! '#, $ , % BEFORE SHRI B.R.BASKARAN, AM AND SHRI AMARJIT SINGH , JM / I.T.A. NO.6495/MUM/2013 ( $ & '& / ASSESSMENT YEAR: 2008-09) D.C.I.T., CIRCLE 3(1) ROOM NO.607, AAYAKAR BHAVAN, MUMBAI - 400020 / VS. M/S. EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD. 5 TH FLOOR, NIRMAL BUILDING, NARIMAN POINT, MUMBAI - 400021 ./ ./ PAN/GIR NO. : AAACE0296K ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 30.03.2016 !' /DATE OF PRONOUNCEMENT:29.06.2016 #$ / O R D E R PER AMARJIT SINGH, JM: THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST TH E ORDER DATED 08.08.2013 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEAL) 6, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO THE A.Y.2008-09. ASSESSEE BY: SHRI S. VENKATRAMAN DEPARTMENT BY: SHRI CHANDRAJIT SINGH ITA NO.6495/MUM/13 A.Y.2008-09 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.2,04,39,081/- TO THE TO TAL INCOME OF THE ASSESSEE BEING AMOUNT RECEIVED POST SETTLEMENT OF CLAIMS. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN OBSERVING THAT RS.2,04,39,081/- IS NOT THE INCOME O F A.Y.2008-09 BUT REPRESENTS AN AMOUNT HELD IN TRUST BY THE APPELLANT IN A FIDUCIARY CAPACITY FOR THE EXPORTERS/BANKS. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN OBSERVING THAT ASSESSEE HAS REVERSED AND CAPITALISE D THE EXPENDITURE ON SOFTWARE EXPENSES OF RS.26,59,71 5. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.10,63,886/- BEING N ET OF AMOUNT CAPITALISED AND DEPRECIATION ALLOWED. 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITIONS MADE U/S.40A(9) OF THE I. T. ACT OF RS.10,00,000/-. 6. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN OBSERVING THAT THE REMARKS OF THE TAX AUDITORS IN H IS REPORT ABOUT THE DISALLOWABILITY OF THE AMOUNT WHIC H HAS ALSO BEEN COUNTERSIGNED BY THE ASSESSEE. 7. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN OBSERVING THAT THE CLUB EXPENSES AS BUSINESS EXPENS ES OF THE ASSESSEE. ITA NO.6495/MUM/13 A.Y.2008-09 3 8. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED THE RETURN OF INCOME DECLARING INCOME TO THE TUNE OF RS.709,31 ,85,880/- ON 26.09.2008 UNDER THE NORMAL PROVISIONS OF THE INCOM E TAX ACT, 1961 ( IN SHORT THE ACT) AND BOOK PROFIT OF RS.699,61, 02,649/- U/S. 115JB OF THE ACT. THE ASSESSMENT HAS PUT UNDER SCRUTINY BY THE DCIT 3(1) THROUGH A NOTICE U/S.143(2) DATED 13.08.2009. THER EAFTER THE NOTICE DATED 27.11.2009 WAS ALSO ISSUED AND SERVED UPON TH E ASSESSEE ON 30.11.2009. THE ASSESSEE IS AN ENTITY FULLY OWNED BY GOVERNMENT OF INDIA. THE COMPANY IS ENGAGED IN THE BUSINESS OF I NSURANCE OF EXPORT CREDIT RISK OF EXPORTERS IN INDIA AND EXTENDING DIF FERENT TYPES OF INSURANCE / GUARANTEE COVERS TO THE BANKS AND FINAN CIAL INSTITUTIONS IN INDIA FOR FACILITATING THE CREDIT FACILITIES TO THE EXPORTERS. BEING IN THE BUSINESS OF INSURANCE, THE INCOME OF ASSESSEE IS LI ABLE TO BE COMPUTED U/S.44 OF THE ACT READ WITH FIRST SCHEDULE AND RULE 6E OF THE INCOME TAX RULES. THE INCOME OF THE ASSESSEE WAS ASSESSE D BY THE ASSESSING OFFICER TO THE TUNE OF RS.16,32,24,66,870 /- UNDER THE NORMAL PROVISION OF THE ACT AND AN AMOUNT OF RS.699 ,61,02,649/- U/S. 115JB OF THE ACT. SINCE THE ASSESSEE WAS NOT SATIS FIED WITH THE CERTAIN ADDITIONS, THEREFORE ASSESSEE FILED THE APPEAL BEFO RE THE LEARNED CIT(A) WHO ALLOWED THE SAME, THEREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL AND RAISED THE GROUNDS MENTIONED ABO VE BEFORE US. ITA NO.6495/MUM/13 A.Y.2008-09 4 ISSUE NO.1 & 2 :- 4. ISSUE NO.1 AND 2 ARE INTERCONNECTED, THEREFORE A RE BEING TAKEN UP TOGETHER FOR ADJUDICATION. THE REVENUE HAS CHAL LENGED THE DELETION OF ADDITION OF RS.2,04,39,081/- TO THE TOTAL AMOUNT WHICH HAS BEEN RECEIVED BY THE ASSESSEE FOR POST SETTLEMENT OF CLA IMS. THE LEARNED REPRESENTATIVE OF THE DEPARTMENT HAS ARGUED THAT TH E LEARNED CIT(A) HAS WRONGLY DELETED THE ADDITION TO THE TUNE OF RS. 2,04,39,081/-. THEREFORE, THE ORDER OF LEARNED CIT(A) IS HEREBY LI ABLE TO BE SET ASIDE IN ACCORDANCE WITH LAW. HOWEVER, ON THE OTHER HAND THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THES E ISSUES HAVE DULY BEEN COVERED BY ORDER OF INCOME TAX APPELLATE TRIBU NAL IN ITA NO.1971/MUM/2011 DATED 11.12.2015 IN THE ASSESSEES OWN CASE FOR A.Y. 2007-08. IN VIEW OF THE ARGUMENT ADVANCED BY THE LEARNED REPRESENTATIVE OF THE ASSESSEE, IT IS OBSERVED THAT THE ASSESSEE COMPANY IS A PUBLIC LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF EXPORT CREDIT INSURANCE. THE COMPANY ISSUES AN INSURANCE POLICIES TO EXPORTERS AND BANKS IN INDIA TO COVER THE RISK O F THEM NOT REALIZING THE PROCEEDS ON EXPORTS FROM FOREIGN BUYERS. WHEN A CLAIM WAS MADE BY AN EXPORTER AND BANK, THE APPELLANT HONORS THE S AME UNDER THE POLICY ISSUED AND MAKES PAYMENT OF THE CLAIM TO THE EXTENT OF 90% TO THE EXPORTERS / BANKS IN TERMS OF THE POLICY. THER EAFTER, THE ASSESSEE MAKES EFFORTS TO RECOVER THE AMOUNT DUE FROM CENTRA L BANKS ABROAD WHERE MONEY REMITTED BY THE IMPORTERS ARE HELD ON A CCOUNT OF ITA NO.6495/MUM/13 A.Y.2008-09 5 EXCHANGE RESTRICTIONS OR LACK OF FOREIGN EXCHANGE I N THE HANDS OF CONCERNED CENTRAL BANKS. IN THE PREVIOUS YEAR RELE VANT TO A.Y.2007- 08, THE APPELLANT RECEIVED A LUMP SUM AMOUNT OF RS. 5,04,24,036/- FROM THE CENTRAL BANKS LOCATED ABROAD, THAT REPRESE NTED AMOUNTS REMITTED TO THE CENTRAL BANKS BY IMPORTERS OF GOODS FROM INDIA. SUCH LUMP SUM AMOUNT RECEIVED DID NOT CONTAIN THE NAMES OF EXPORTERS AND THE AMOUNTS THAT PERTAINED TO THEM. PENDING IDENTI FICATION OF THE EXPORTERS AND THEIR AMOUNTS, THE APPELLANT REFLECTE D THE SAME IN ITS BALANCE SHEET FOR THE YEAR ENDED 31 ST MARCH 2009, RELEVANT TO THE A.Y.2009-10 AS UNAPPORTIONED CLAIM FOR RECOVERY. IN THE YEAR ENDED 31 ST MARCH 2009, RELEVANT TO A.Y.2009-10, THE APPELLANT CARRIED AN AMOUNT OF RS.2,04,39,081/- AS INCOME TO ITS PROF IT AND LOSS ACCOUNT. THE APPELLANT, THEREFORE, HAS ALREADY OFF ERED THE AMOUNT OF RS.2,04,39,081/- TO TAX IN A.Y.2009-10. 4.1 THE LEARNED CIT(A) DELETED THE SAID ADDITION ON THE BASIS OF THE ORDER PASSED BY LEARNED CIT(A) FOR THE A.YS. 1991-9 2, 1994-95, 1995-96, 1996-97 AND 2007-08. IT WAS HELD THAT THE SAID AMOUNT IS NOT THE INCOME OF THE ASSESSEE AS THE SAME WAS HELD IN THE CAPACITY OF FIDUCIARY FOR THE EXPORTERS / BANKS, PENDING IDENTI FICATION OF THE EXPORTERS AND THEIR SHARE. ACCORDINGLY, THIS AMOUN T HAS BEEN ORDERED TO BE DELETED. THEREAFTER, THE MATTER IN THIS REGA RD CAME BEFORE THE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.1971/MUM/20 11 DATED 11.12.2015 IN THE ASSESSEES OWN CASE FOR A.Y.2007- 08 WHEREIN IT HAS ITA NO.6495/MUM/13 A.Y.2008-09 6 BEEN HELD THAT THIS AMOUNT WAS NOT THE INCOME OF TH E ASSESSEE AND UPHELD THE FINDING OF THE LEARNED CIT(A) IN THE ASS ESSEES OWN CASE. ACCORDINGLY, IT IS APPARENT THAT THIS GROUND HAS BE EN SQUARELY COVERED BY THE ORDER PASSED BY THE INCOME TAX APPELLATE TRI BUNAL IN THE ASSESSEES OWN CASE FOR A.Y.2007-08 AND THEREFORE, WE ARE OF THE VIEW THAT ON THIS GROUND LEARNED CIT(A) HAS PASSED THE ORDER JUDICIOUSLY AND CORRECTLY WHICH DOES NOT REQUIRED T O BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ISSUE NO.3 & 4 :- 5. THE REVENUE HAS CHALLENGED THE DELETION OF SOFTW ARE EXPENSES TO THE TUNE OF RS.26,59,715/- AND DISALLOWANCE OF R S.10,63,886/- BEING NET AMOUNT OF CAPITALISED AND DEPRECIATION AL LOWED. THE ASSESSEE CLAIMED THE EXPENDITURE ON SOFTWARE EXPENS ES TO THE TUNE OF RS.26,59,715/-. THE ASSESSING OFFICER TREATED THE SAME AS INTANGIBLE ASSET AND ALLOWED THE DEPRECIATION TO THE TUNE OF R S.15,95,829/- AND DISALLOWED THE DIFFERENCE TO THE TUNE OF RS.10,63,8 86/- (RS.26,59,715/- - RS.15,95,829/-). AT THE VERY OUT SET LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THIS ISSUE HAS ALSO BEEN COVERED BY THE ASSESSEES OWN CASE IN ITA NO.1971/M UM/2011 DATED 11.12.2015 FOR A.Y.2007-08. COPY OF ORDER PERUSED. FINDING OF THE ITATS ORDER ON THIS ISSUES HAS BEEN GIVEN AT PARA 11 AND 12 OF THE ORDER WHICH IS HEREBY REPRODUCED BELOW:- ITA NO.6495/MUM/13 A.Y.2008-09 7 11. THE AO HAS ALLOWED THE SAME BY TREATING THE SA ME AS CAPITAL EXPENDITURE BUT HAS GRANTED DEPRECIATION. THE SAID ADDITION HAS BEEN DELETED BY THE CIT(A) AS REV ENUE EXPENDITURE. BEFORE US, THE LD. COUNSEL RELIED UPO N THE FOLLOWING DECISIONS:- I CIT V ASAHI INDIA SAFETY GLASS LTD. 347 ITR 329 ( DEL) II CIT V AMWAY INDIA ENTERPRISES 346 ITR 341 (DEL) III CIT V RAYCHEM RPG LTD. 347 ITR 138 (BOM) 12. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE AG REE WITH THE FINDING GIVEN BY THE CIT(A), BECAUSE HERE IS THIS CASE, THE EXPENDITURE HAS BEEN INCURRED ON ANTIVIRU S SOFTWARE WHICH IS USED IN THE OPERATING SYSTEM OF T HE COMPUTER WHICH IN TURN IS FOR RUNNING OF THE BUSINE SS MORE EFFICIENTLY. NO CAPITAL ASSET OF ANY ENDURING BENEFIT HAS BEEN ACQUIRED BY THE ASSESSEE. IN THE CASE OF SWITCHES ALSO, THERE IS NO ACQUISITION OF ANY CAPIT AL ASSET GIVING ANY ADVANTAGE OF ENDURING NATURE TO THE ASSE SSEE, AS THESE REQUIRED PERIODICAL UPDATION AND CONSTANT IMPROVEMENT FROM TIME TO TIME. IN THE DECISIONS CI TED BY LD. COUNSEL IT HAS BEEN CONSISTENTLY HELD THAT SUCH AN EXPENDITURE ON SOFTWARES IS NOTHING BUT REVENUE IN NATURE. ACCORDINGLY, ON THIS SCORE ALSO, THE GROUN D RAISED BY THE REVENUE IN NATURE. ACCORDINGLY, ON THIS SCO RE ALSO, THE GROUND RAISED BY THE REVENUE IS DISMISSED. ITA NO.6495/MUM/13 A.Y.2008-09 8 5.1 IN VIEW OF THE ABOVE SAID FINDING OF THE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.1971/MUM/2011 IN THE ASSESSEES OWN CASE, IT IS NOT IN DISPUTE THAT THE CO-ORDINATE BENCH OF INCOME TAX APPELLATE TRIBUNAL HAS TREATED THAT SOFTWARE EXPENSES AS REVE NUE IN NATURE AND ALLOWED THE SAME. NO DISTINGUISHABLE FACTS HAS BEE N PLACED ON RECORD. NO ANY OTHER ORDER WHICH IS CONTRARY TO THE ORDER P ASSED BY THE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.1971/MUM/20 11 IN THE ASSESSEES OWN CASE HAS BEEN PRODUCED. THEREFORE, IN THE SAID CIRCUMSTANCE BY FOLLOWING THE OBSERVATIONS OF CO-OR DINATE BENCH WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HAS RIGHTLY DELETED THE EXPENSES AND ALLOWED THE SAME. ACCORDINGLY, THIS I SSUE IS DECIDED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. ISSUE NO.5 & 6 :- 6. ACCORDING TO THESE ISSUES THE REVENUE HAS CHALLE NGED THE DELETION OF ADDITION TO THE TUNE OF RS.10,00,000/- MADE U/S.40A(9) OF THE ACT. THE LEARNED REPRESENTATIVE OF THE DEPART MENT HAS ARGUED THAT THE LEARNED CIT(A) HAS WRONGLY DELETED THE SAID ADD ITION MADE U/S.40A(9) OF THE ACT TO THE TUNE OF RS.10,00,000/- . ON THE OTHER HAND LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED T HAT THIS ISSUE HAS ALSO BEEN COVERED BY THE ASSESSEES OWN CASE IN ITA NO.924/MUM/2010 DATED 27.04.2011 RELEVANT TO THE A. Y.2006-07. THE FINDING ON THIS ISSUE HAS BEEN GIVEN BY THE INC OME TAX APPELLATE ITA NO.6495/MUM/13 A.Y.2008-09 9 TRIBUNAL IN PARA NO.3 OF THE SAID ORDER WHICH IS HE REBY REPRODUCED BELOW:- 3. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY O F EXPENDITURE INCURRED BY THE ASSESSEE ON ACCOUNT OF CONTRIBUTION TO EMPLOYEES RECREATION CLUB. THE CL UB HAD BEEN FORMED FOR PROVIDING RECREATION FACILITIES TO THE EMPLOYEES FOR THE PURPOSE OF DISTRESSING THEM WITH A VIEW TO IMPROVING THE PERFORMANCE DURING THE YEAR. THE ASSESSEE HAS PLACED RELIANCE ON THE JUDGMENT OF HON BLE HIGH COURT OF MUMBAI IN CASE OF CIT VS. BHARAT PETROLEUM CORPORATION (SUPRA) IN SUPPORT OF THE ALLOWABILITY OF CLAIM. WE HAVE GONE THROUGH THE SA ID JUDGEMENT. WE FIND THAT IN THAT CASE THE ASSESSEE HAD REIMBURSED THE EXPENSES INCURRED BY THE CLUB FORMED FOR THE WELFARE OF THE EMPLOYEES. THE HIGH COURT HELD THAT THE REIMBURSEMENT OF EXPENSES INCURRED BY THE CLUB DID NOT CONSTITUTE CONTRIBUTION UNDER SECTION 40A(9) AN D THEREFORE COULD NOT BE DISALLOWED UNDER THE SAID SE CTION. IN THIS CASE THE FACTUAL POSITION IS NOT CLEAR AS T O WHETHER THE PAYMENT MADE BY THE ASSESSEE WAS TOWARDS REIMBURSEMENT OF EXPENSES OR IT WAS A GENERAL CONTRIBUTION. WE THEREFORE SET ASIDE THE ORDER AND RESTORE ITA NO.6495/MUM/13 A.Y.2008-09 10 THE MATTER TO THE FILE OF AO FOR PASSING A FRESH OR DER AFTER NECESSARY EXAMINATION IN THE LIGHT OF JUDGMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF BHARAT PETROLEUM CORPORATION (SUPRA) AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 6.1 IN THE SET ASIDE PROCEEDINGS THE ASSESSING OFFI CER HAS DELETED THE ADDITION. HENCE LD. CIT(A), BY FOLLOWING ITAT ORDER AND ALSO AFTER CONSIDERING THE ORDER PASSED BY ASSESSING OFF ICER FOR A.Y.2006- 07 IN THE SET ASIDE PROCEEDINGS, DELETED THE ADDITI ON MADE IN THIS YEAR. IN VIEW OF THE SAID CIRCUMSTANCES WE ARE OF THE VIE W THAT THIS ISSUE HAS ALSO BEEN SQUARELY COVERED BY THE ORDER OF INCOME T AX APPELLATE TRIBUNAL IN THE ASSESSEES OWN CASE (SUPRA). NO DI STINGUISHABLE FACTS WERE PLACED ON RECORD CONTRARY TO THE FINDING OF TH E LEARNED CIT(A). THEREFORE, IN THE SAID CIRCUMSTANCES WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HAS PASSED THE ORDER JUDICIOUSLY AND CORRECTLY WHICH DOES NOT REQUIRE TO BE INTERFERE WITH AT THIS APPEL LATE STAGE. 7. ACCORDINGLY THE APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JUNE , 2016. SD/- SD/- (B.R.BASKARAN) (AMARJIT SINGH) # / ACCOUNTANT MEMBER %& # /JUDICIAL MEMBER ' ( MUMBAI; )# DATED : 29 TH JUNE, 2016 MP MP MP MP ITA NO.6495/MUM/13 A.Y.2008-09 11 ) * +$!', -,'! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT(A)- 4. * / CIT 5. -./ &&01 , 01' , ' ( / DR, ITAT, MUMBAI 6. /34 5 / GUARD FILE. ) / BY ORDER, - & //TRUE COPY// ./# /(DY./ASSTT. REGISTRAR) , ' ( / ITAT, MUMBAI